Consider the following Heckscher-Ohlin model. There are 2 countries, Home and Foreign, and their resources are as follows. Home Foreign Labor 15 40 Capital 10 16 These two countries produce 2 goods, videogames and toys, using capital and labor. Videogames are capital intensive. For questions 9-10, consider the Foreign country. Suppose that the price of video games decreases by 10% in the movement from closed economy to free trade, while the price of toys remains unchanged.
9. T/F. The rental rate decreases by more than 10%.
10. T/F. The real rental rate in terms of toys decreases by more than 10%.